True Cost

I was walking home the other day looking at posters pasted up on the fence around a building site. "I've no objection to flyposting in places like this..." I thought, "...as long as the people who do it pay the costs of clearing it up..."

Then I caught myself. Just how exactly do you go about doing that?

It's a commonplace view in economics these days, the doctrine of making people and organisations pay externalities, 'shadow prices' or 'true cost', or whatever you prefer to call them. The logic's basically like this. The market system works fine, except that people can get away without paying for a range of things. Including some very important things, like pollution. So what's needed is to bring those costs into the transaction - make companies pay £10 for every ton of carbon they emit, or £100,000 for every endangered animal they kill, and so-on. That pushes production and consumption away from bad things, and allows you to compare different bad things - it's worth killing one endangered animal if it saves 10,000 tons of carbon emissions.
Maybe it's not fully come into the world of politics, or everyday use - probably because those two are more practical - but it's fundamental in a lot of economics, and to quite a bit of political (especially environmental) activism.

Can you really put a price on everything like that, and make people pay it, though? It's a massive project, even supporters must agree.
The question's certainly not novel - it's pretty obvious, but other day it struck me just what this whole idea is really like; it's one of those great, and always slightly loopy, projects to bring everything under one philosophical system. In particular the enlightenment project to rationalise the world. In its way it's a much more encompassing system than traditional economics - that's happy to forget about all the extra bits and pieces and either to leave them to other fields or insist they're ignored.

Burma & post-colonial anti-colonialism

It's one of the features of being a former colonial power that not only do we tend to think we're responsible for most of the problems in the world but also that we have the responsibility and power to fix them.

The most interesting thing I've heard about Burma in the last few weeks - and granted I haven't been paying close attention - was a snippet from the peer Lord Desai. He explained how China and India are battling for influence in Burma and access to its economic resources. Rather than lose out to the pragmatic Chinese, India has put its generally liberal foreign policy on hold and worked with the Burmese regime.

We can say and do what we like, but in the face of India and China there's not really much we can do to influence Burma.

Why did I not know about this?

From this post on Gin, Television and Social Surplus.

I was recently reminded of some reading I did in college, way back in the last century, by a British historian arguing that the critical technology, for the early phase of the industrial revolution, was gin.

The transformation from rural to urban life was so sudden, and so wrenching, that the only thing society could do to manage was to drink itself into a stupor for a generation. The stories from that era are amazing-- there were gin pushcarts working their way through the streets of London.

not just illegal, but unacceptable.

The Liberal Conspiracy blog calls it "evidence-free" policy making. It is certainly a classic example of how drugs policy is made.

In 2004, Cannabis was downgraded from a Class B to a Class C drug, meaning penalties for possession and supply were reduced (though the maximum sentence for supply remained the same) and giving a signal to police to spend less resources on combating the drug. In the years since then, there has been a steady decline in the rate of cannabis use (eg. from 10.8% to 8.2% of people admitting to having used it in the last year). This is consistent with the well-established trend that making drugs illegal tends to increase their use.

Set against this decrease in use was an increase in the strength of cannabis sold and new evidence that cannabis increases the likelihood of schizophrenia and other mental illnesses. This, and a media campaign which included not just the usual right-wing tirades, but the Independent dramatically reversing its formerly liberal position.

The government commissioned the Advisory Committee on the Misuse of Drugs to produce a report, as it is required to do whenever it wants to change the law. Among the ACMD's conclusions were:

Although there is a consistent (though weak) association, from longitudinal studies, between cannabis use and the development of psychotic illness, this is not reflected in the available evidence on the incidence of psychotic conditions. The most likely (but not the only) explanation is that cannabis – in the population as a whole – plays only a modest role in the development of these conditions. The possibility that the greater use of cannabis preparations with a higher THC content might increase the harmfulness of cannabis to mental health cannot be denied; but the behaviour of cannabis users, in the face of stronger products – as well as the magnitude of a causal association with psychotic illnesses – is uncertain.

Evidence about the social harms associated with cannabis is clearer. Despite public anxieties, there is little real evidence that cannabis is a significant cause of acquisitive crime or of anti-social behaviour. There is, though, cause for concern about the growth of cannabis farms and the emergence of wider organised crime, including people trafficking, that is associated with them.

Decisions about advising on classification must, ultimately, be based on the Council’s collective judgment about the relative harmfulness of substances within, and between, classes. On balance, taking into account the totality of the relevant issues and very mindful of the actual and potential harms, the majority of the Council advises that cannabis and the cannabinols remain in Class C. Although the majority of members recognise the harms caused by the use of cannabis to individuals and society, they do not consider these to be as serious as those of drugs in Class B.

Just to add to this, the police stated reclassification would not change their strategy of "confiscate and warn", freeing up police time for what they consider more serious matters.

Faced with this evidence, the government did not sway from its course, and also decided to throw in some extra new penalties. Carefully cherrypicking from the ACMD's evidence, Home Secretary Jacqui Smith stated "young people may binge on skunk in the same way as alcohol, trying to achieve the maximum effect". Presumably she was oblivious to the implications of comparing the use of cannabis to that of a perfectly legal drug.

According to Gordon Brown, the government needs "to send out a signal that cannabis use was not just illegal but also unacceptable". This may seem like an odd thing to say. Is being unacceptable now a step up from illegal?
On further thought though, this makes sense. After all David Cameron had to specifically state that he knows it's important to obey the law (even though he didn't). Well done David, having mastered the finer points of our legal system you are truly fit to be in charge of it. So if there's the chance that Cameron might be confused about this crucial point, is it any wonder Gordon Brown thinks cannabis users need it making clear to them?

Expect to see a rise in the use of cannabis in the next few years.

(All unreferenced info from the ACMD report into cannabis.)

‘why the fuck are we all so miserable in the first place?’

Lon takes issue with my question "can money buy you happiness?"
The first thing to say to this is that there's no objective measure of happiness anywhere around here. Nothing to say "members of this group are happy", "the people in this country are unhappy". All we can say is that these people are happy than these people or less happy than they used to be. (Incidentally, there are at least two statistical effects tending to push the data here away from the extremes and towards the middle - see comment on the last post.)

As I only hold knowledge about animal behaviour, I have been taught that to keep animals happy, in order for them to breed in captivity and not suffer from depression, species have to be kept as close to their evolved way of life as possible, especially primates.

I've always wondered just how happy animals really are, especially when you take into account their periods of disease, hunger, death of relatives and friends and so-on. Sadly there is no survey data where they trained dogs to bark a number of times to indicate how happy they were.
This sounds like the sort of thing an evolutionary psychologist would say, though. I'd like to see a fight between an evolutionary psychologist and an economist.

Mark takes up the theme:

Though it's not empirical, quantifiable data (something that would be very difficult to glean in this area), I have seen many documentaries & read a lot of articles of traveling reporters & Humanist scientists who have spent time with remote tribes who insist such people, whilst living a subsistence lifestyle, are the happiest people they have ever met. These people spend their lives working for the direct benefit of a small group of people, hunting, gathering, building, growing.

That's a familiar viewpoint, though as with animals I wonder how accurately it reflects the burdens of disease and early death (particularly in childbirth) in these communities.

Naturally, these societies are not reflected in the Gallup, or any other, polls. This does suggest, however, that rural populations might be happier than urban ones - having a somewhere more traditional lifestyle. That's not something that's obviously borne out in the data, though one interesting theory you could propose is that the reason Easterlin found a paradox and this data is because poor countries have urbanised a great deal since the 1970s. Still, I don't think it's an argument that would stand up to scrutiny.

The point is, what should we be aiming for to make people happier? (If we accept that as a reasonable goal.) Some positive points about increasing incomes there is good evidence of a strong relationship between increasing income and happiness and that it's something people, governments, society and suchlike are experienced thinking about. One of the downsides is that that doesn't necessarily mean they're good at doing it.

In other words, it's not a foregone conclusion that effort put into increasing GDP will be more successful than the same amount of effort put into increasing happiness another way. Trying to increase GDP is certainly not the same thing as succeeding... Though that applies to other changes as well. The US experience is salutary. Here's a case where a country has increased its GDP, with the assistance of government policies strongly aimed at this, at the expense of other goals. This success on GDP hasn't made people any happier.

So what should we be doing to make people happier? To start with, none of this is prescriptive at an individual lesson. It's not saying the way to make yourself happy is to go out and try and raise your income. In terms of broader social and political aims, should economic growth (with appropriate environmental caveats) be our primary aim? Or would we be better off using other means?

The question of whether we might benefit from trying tomould our societies more closely to homo sapiens' 'natural state' and/or incorporate more features from tribal societies is one that I'm going to have to leave open.

Interesting as Wolfers and Stevenson's research is, it still leaves these questions wide open for debate. And even the specific argument about happiness is bound to keep running away.

Yes, but are you really happy?

Now there's at least one obvious problem with this approach to happiness. To quote my psychologist cohort Chelle, "[t]he main problem with self report is that people are big fat liars." A more thorough survey would look at physiological and other objective measures. But of course, happiness and other emotional state are subjective experiences, so self-reporting is not an unreasonable measure. It should also be noted that 1) the Wolfers-Stevenson paper is titled "...Subjective Well-Being..." and 2) any criticisms of self-reporting apply just as much to the classic Easterlin study.

What about the main questions, which ask variations on 'how do you rate your life?' or 'how happy are you with your life?' Maybe we're placing too much weight on that one form of question?
Well one of the interesting things here is that the Gallup surveys include a whole range of other questions related to happiness, from "did you experience sadness yesterday?" to "did you have tasty food yesterday?" The relationship in most cases is pretty weak, but in every case increased income improved people's lives (or so they said). (See here.)

Have a look at depression, for example. I know I would have said that rates of depression are higher in rich countries; there's all this angst about unfulfilling consumerist lifestyles, suburban anomie, lack of social support and so-on. It turns out, though, that if you ask people "have you experienced feelings of depression" that's not what you find.

Lon asks another sensible question, "If money can buy happiness, shouldn't that mean the majority of the world would have committed suicide by now?"

To start with, I haven't found any international rates for depression, but there is data for suicides (see here). On the whole it seems more people kill themselves in rich countries (though China and India are major mid-liers and stats for Africa are almost non-existent). Suicide is a pretty puzzling phenomenon and I don't think it's one that relates to other factors in a clear way. Depression, and other mental illnesses, it's harder to say, but depression is a global burden - I think the WHO rates it something like #4 in its list of problem-causing diseases. We're much more aware of it in the rich world partly because we have resources for diagnosis. And, to give the professionals some credit, that may also be why we report lower rates.

That aside, if you trace the best fit line back, it hits 0 on the x-axis with a happiness score not far below Togo(?) and Benin. That's roughly how happy cavepeople might have been... It doesn't seem horrifyingly unhappy.

Happiness is...

positively related to the log of Gross Domestic Product per head.

It's a fundamental notion in economics that expanding output of goods and services - that is, GDP - makes people happier. That is a view that has always been challenged by some individuals and philosophies, but it has always been dominant in economics and in politics, both capitalist and socialist.
In 1974, however, Richard Easterlin studied the empirical evidence from surveys that asked people how happy they were. Easterlin found the following paradox:

1) within countries rich people are happier than poor people.
2) rich countries are not happier than poor countries.
3) countries do not get happier as they get richer.

This is a finding that remains controversial to this day. One of the theories that can be drawn from it is that richer people are happier because they compare themselves to less well off people. Naturally, we compare ourselves more to people in the same country as us, which is why it is income differences within countries that have an effect. The idea that steadily increasing wealth isn't automatically making us happier - indeed it may be making us more unhappy - has become widespread, if not quite mainstream. Examples range from the Kingdom of Bhutan's commitment to "Gross National Happiness" to the concept of Affluenza, developed by psychologist Oliver James, to even the Tory party suggesting it would aim more for happiness than growth. It's certainly a commonplace notion among people I know that rates of depression are higher in rich countries, or at least the UK and US (and possible Japan and Scandinavia), than poor ones.

Recently, the economists Justin Wolfers and Betsey Stevenson have examined more up-to-date evidence on happiness. The approach they use is similar to Easterlin, relying on surveys which basically ask people to rate how happy they are. The results and discussion can be found in a series of posts on the freakonomics blog here and in a proper academic article. They're one of the most interesting things I've read this year.

Wolfers and Stevenson's conclusion is that in fact higher GDP does increase happiness, both within and between countries. Their view is that Easterlin simply didn't have the data available to make any firm conclusions. Since 1974 we have access to much more information, most notable the epic Gallup World Poll.

Plot things on a graph and you get this:



That is clearly a strong correlation between GDP and 'life satisfaction', even without looking at the proper stats (giving an extremely high correlation of 0.82).

One thing that is worth noting before moving on is that the scale for GDP is logarithmic. In other words, an extra $100 increases the happiness of someone on $500 per year more than it does someone on $5000 a year. That's common sense, and something that's accepted by economics, but it's still something that doesn't get emphasised enough.

What the logarithmic scale does show clearly is that a proportional increase in GDP has the same proportionate effect in happiness regardless of how rich you are. It doesn't matter if you are on $500 or $5000, if your income doubles, your happiness will increase by the same proportion (about a third of a unit). If this weren't the case, the best fit line would not be straight.
There is no 'saturation effect' beyond which extra wealth doesn't make people any happier. Or at least, if there is, we haven't reached it yet.

Just to be thorough, Wolfers & Stevenson show that not only are rich countries happier than poor ones, but within countries rich people are happier than poor people (here) but on the whole countries get happier as they get richer (a href="http://freakonomics.blogs.nytimes.com/2008/04/23/the-economics-of-happiness-part-5-will-raising-the-incomes-of-all-raise-the-happiness-of-all/" target="_new">here). The former relationship is universal, but the latter has more problems. It holds for most European countries (but not Belgium), seems to hold (with some caveats) for Japan, but does not apply to the US. On the whole, people in the US have got marginally less happy in the last 30 years. The authors suggest that this may be due to the distribution of income - the rich have got richer, pushing up average incomes, while increasing happiness little (due to the diminishing returns mentioned above). There's more analysis of the US in the full paper, though not of poor grumpy Belgium.
This time-series data also suggests that all this is not simply the result of people comparing their income to others.

Has conventional economics been right all along on this topic? Do we romanticise poverty and the lifestyles of the poor? Figures on suicide (see next post) do suggest rich countries have particular problems, and the US is a salutary lesson not to forget diminishing returns and let the already wealthy take the most benefits. On the whole though, the empirical data suggests they are significantly happier.

(Cliffhanger ending: Or does it..........?)